The Court May Rely on and Use the Average of Alternate Valuation Methods to Assign a Value to Goodwill

A divorce court does not need to rely on only one method of valuing the goodwill of a company and may instead determine a value based upon differing methods.

In Webb, Husband operated a private investigation business founded during the marriage. Wife’s expert testified, in the divorce trial, that based upon the capitalization of excess earnings formula the value of the goodwill of the business was $31,500.  Husband’s expert testified that because no similar business had been sold in the area in many years, the investigation business had no goodwill.  The Court assigned a value of $16,000 to the goodwill of the business -- in essence splitting the difference between the two expert’s values.

On appeal the Second District affirmed the divorce court’s use of an average between two opposing valuation methods in assigning a value to goodwill. The Court stated that “[t]he trier of fact may take into consideration the situation of the business premises, the amount of patronage, the personality of the parties engaged in the business, the length of time the business has been established, and the habit of its customers in continuing to patronize the business. The court may also take into consideration the market value at which the business goodwill could be sold on dissolution of the marriage."

In re Marriage of Webb (1979) 94 Cal. App. 3d 335